Alex J. Mandl assumed the reins of Sea-Land Corp. just three short months ago, but he already has concluded that some fundamentals of the business must change in or- der for Sea-Land Service Inc. and other containership lines to make a decent return from their operations.
We want to make this business work, said the new chairman and chief executive of Sea-Land. To do that, we need a return that at least covers our cost of capital.That's an absolute minimum. But for this business to return a decent profit, some fundamentals must change. We and others in the industry have to perform differently. I'm not just talking about U.S.-flag companies. I'm also talking about foreign-flag containership operators. None of us is making much money.
Over the years the world's containership operators, which transport about 4 percent of the world's trade by volume but 40 percent in terms of value, have undercut one another by reducing operating costs through new investment.
As major operators have been putting newer and bigger ships in the water, they have cut nearly half the operating cost per container-mile of 10 years ago. However, operators have not reaped the benefits of vhose savings because most rates have dropped more than the cost reductions.
The industry may never make an adequate return if everyone continues reinvesting in new ships to drive costs down while simultaneously pushing rates down, said Mr. Mandl. As an industry, we must rethink how we do our business.
Not content with just calling on the containership industry to put its house in order, Mr. Mandl already has been busy making changes at Sea-Land. Several senior management changes have been made with a renewed emphasis on marketing. Sea-Land long has had a reputation for strong operations.
Business during his short tenure as head of Sea-Land Service Inc., the largest containership company in the world, also has improved. Sea-Land contributed $30 million in third quarter operating income for its corporate parent, CSX Corp. That was a 50 percent improvement over the third quarter of 1987, when Sea-Land had $20 million in operating income.
At this stage it would appear that our fourth quarter should be better than our fourth quarter last year, Mr. Mandl said.
We also see a fairly decent year in 1989. I just spent much of September working on our business plan for next year with our senior management. Indications are that we should do a little better than in 1988. We put together an aggressive plan, but I think it is do-able. Otherwise I would not have signed off on it.
The trans-Atlantic trade has its problems, but we expect a reasonable return there, he said. The trans-Pacific is much more questionable. Freight rates from Asia to North America have deteriorated, and it's difficult to forecast what will happen to those rates next year.
It's fitting that Mr. Mandl took over the reins of Sea-Land Corp., headquartered in Edison, N.J. Two years ago, as senior vice president of corporate development for CSX Corp., he headed up the team that recommended that CSX purchase Sea-Land.
Mr. Mandl, 44, is the second CSX Corp. top executive to lead its Sea-Land subsidiary in less than two years. Mr. Mandl has been with CSX and its preceding company for eight years. He replaced Robert L. Hintz, 57, who will retire from CSX at the end of the year.
As head of corporate development at CSX' Richmond, Va., headquarters, Mr. Mandl led a team of CSX experts in marketing, operations, finance and legal affairs and a few outside consultants in studying the possibility of acquiring Sea-Land, the nearly $2 billion international container transportation company that pioneered the transport of combination truck and rail containers aboard ships.
For several months we considered all these different perspectives on Sea- Land, finally developing a list of advantages and disadvantages of the
purchase that we presented to Hays Watkins (chief executive of CSX) and the board, Mr. Mandl added.
Although we offered a balanced perspective on the Sea-Land acquisition, it was Mr. Watkins who made the call and who recommended it to the board. Nearly two years later, I must say, there have been no major surprises. The team did its homework well.
In addition to Sea-Land, CSX operates the second-largest railroad in the country in terms of track miles and the largest barge company in the United States. It also has extensive holdings in energy and property, and it operates various transportation and technology-intensive companies. Annual revenue totals $8 billion, assets about $13.2 billion.
CSX acquired Sea-Land, Mr. Mandl said, because Sea-Land permits CSX to broaden its capacity to serve our customers in the two areas of transportation in which CSX's own freight-moving needs were expanding: international transportation and intermodal or, more accurately, multimodal transportation.
In the 15 months that Mr. Hintz, also a long-time CSX executive, handled the reins at Sea-Land, he improved Sea-Land's fleet. He was able to get the
CSX board to spend an estimated $400 million to $500 million to add 24 ships to the Sea-Land fleet, including the 12 largest containerships in the world, which had been operated by United States Lines. Those 24 ships represent the largest container-carrying capacity ever added to a ship company in such a short period during peacetime.
Now that Sea-Land's assets have been updated, Mr. Mandl said his primary job is to help make the company operate more efficiently for its customers and for CSX's bottom line.
Having the right service at a competitive price is important, but Mr. Mandl said that does not assure a steamship line of getting a customer's freight business.
What's often overlooked, and this is a key to marketing, is how you approach a customer, said the Sea-Land Corp. chairman. With each individual customer, you must find out where, at what level, the decision to purchase transportation is made. Many companies are decentralized, and the decision is made at a relatively low level in different geographic locations. At other companies those decisions are made at the highest level.
Once the carrier has the assets and the service customers want, and has identified the customers' decision-makers and how to reach them, Mr. Mandl said, it is of paramount importance to operate all levels of the company's activity efficiently. Otherwise you do not make profit, he said.
There are certain things Sea-Land employees should expect from Mr. Mandl early in his management of the company.
* He expects to work on accelerating the decision-making process in the company. That requires pushing down decisions to the lowest levels that can still keep an accountability to the overall business strategy of the company, he said.
* He also would like to speed up internal communication within the company and among the four major operating centers of the CSX family.
* Mr. Mandl believes in further rationalization of services. The agreement that Sea-Land has with TFL and Nedlloyd in the Atlantic, in which they use our ships to better serve their customers, is a cost-effective use of assets for all three companies, he said. I expect the industry to do more of that kind of cooperation.
Trans Freight Lines Inc. is a subsidiary of Great Britain's P & O Containers Ltd., and Nedlloyd Lines is a major Dutch-owned international transportation company.
Mr. Mandl sees cooperative business arrangements with other transportation companies as a means of reducing duplication of services while increasing profits for carriers.
He sees Europe's intent to drop trade barriers among the 12 members of the European Community by 1992 as an opportunity for Sea-Land to enter into a joint venture with a European carrier.
We have had considerable discussion among the executive management of Sea- Land on how we might protect ourselves during this transformation of Europe, he said. We have come up with several options depending on the positions taken by the European Community. A joint venture with a European company is the kind of option that makes a lot of sense.
Nor has Mr. Mandl closed the door altogether on an arrangement with the Great Atlantic & Pacific Shipping Corp., which earlier in the year had proposed to lease 24 of Sea-Land's line-haul vessels and operate them for Sea- Land. As originally conceived, this arrangement would permit Sea-Land to reduce operating costs by $24 million to $48 million annually. The savings would come from A&P Shipping applying direct operating subsidies from the Maritime Administration against the Sea-Land vessels.
There is still a possibility that this might come about, Mr. Mandl said. A&P needs to realign some of the concept to make it work. However, this is just one of a number of ways for us to attempt to deal with the cost disadvantage Sea-Land Service incurs as the only major non-subsidized U.S.-flag carrier.
Because of his broad experience in most areas of CSX and his long-term working relationship with Mr. Watkins, CSX chief executive, John W. Snow, chief operating officer, and members of the CSX board, Mr. Mandl feels he brings to Sea-Land, as Bob Hintz did before him, the capability to accelerate the decision-making process for Sea-Land at CSX corporate headquarters.
Mr. Watkins obviously has a high opinion of Mr. Mandl's skills, and officials in the company point out that there is a good rapport between the two men.
Mr. Snow also has had a good working relationship with Mr. Mandl over the years. I'm sure Alex will be a great success in the new assignment at Sea- Land, Mr. Snow said. He brings to the job a strong background in finance and planning, a high intelligence and great industry. Having worked with Alex for a number of years now, I have great confidence in him and in his ability to produce results.
At Sea-Land Mr. Mandl looks forward to the luxury of concentrating on one company. Over several years, and especially at CSX, I have had to juggle a number of assignments in different areas, he said. Being able to focus my energy and attention primarily on Sea-Land, its usefulness to our customers and its further integration into CSX's global business operations, is not only a challenge I look forward to, but it should be fun and exciting.
Mr. Mandl's personal management style would appear to be well suited to a dynamic international operation like Sea-Land.
Alex is a quick study, said M. McNeil Porter, president of CSX/Sea-Land Intermodal. He has the ability to absorb detailed, complicated information, turn it around and express it in very simple fashion. Once he sets the plan, he is determined that the goals are accomplished as set out and quickly. Competent, detailed and thorough work are all things he assumes from those who work for him.
Establishing priorities is essential to operating efficiently and effectively in a dynamic, constantly changing environment, according to Mr. Mandl. But in the process one must still be flexible to re- adjusting the priorities as circumstances change.
The modern-day manager can be compared with a fighter pilot in a dog fight, Mr. Mandl said. While always seeking to get his enemy in his sights, the fighter pilot must be ever mindful of what is occurring on each side and behind him. And even when locked in on the enemy plane, if another enemy plane comes up behind him, he must be prepared to break off the battle instantly to protect himself.
Make no mistake, Mr. Mandl added, market supremacy in international transportation is a battle.
The world has caught up with us, he said. Look at the banking industry. Ten years ago, five of the top 10 banks in terms of revenues and assets would be American. Now we're lucky if there is one among the top 10. The U.S. containership industry is experiencing similar tough competition from the fleets of other nations.
But he is more than sanguine about Sea-Land's chances to again be the premier containership operator in the world. We have the human, vessel, terminal and equipment assets, and we are supported by a CSX transportation, technology and informational network second to none. Becoming better at managing all our assets is what's needed. And if we don't do it, we haveonly ourselves to blame because we have an advantage over most of our competitors.
Before you can effectively integrate separate companies with different though complementary functions, they must be strong stand-alone units, said Mr. Mandl. Tying three rocks together no matter how tightly tied won't make them float. What I am saying is that the future success for Sea-Land is not with Sea-Land alone.
For us to reach our potential, it is important that the other major parts of CSX reach their potential as well, Mr. Mandl said.